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FINANCIAL MARKETS

Profit Taking Clips Techs, but Dow Sets Record

February 08, 1996|From Times Wire Services

The Dow industrials pushed further into record territory Wednesday as investors sought the safety of blue-chip stocks, but a six-day rally in computer and semiconductor issues faltered, tempering the advance.

"The economic backdrop is a good backdrop for stocks, with the prospect for more interest rate cuts to come," said James Solloway, director of research at Argus Research. Lower interest rates are expected to pump profit growth later this year as they perk up the economy.

Unexpectedly strong earnings from Sears Roebuck & Co. helped boost the Dow industrial average to its 10th record this year. The Dow climbed 32.51 points to 5,492.12. Much of the gains came in the last hour of trading. Computer-guided "buy" orders helped the index rebound almost 52 points.

Sears jumped 1 3/4 to 44 3/8 after reporting that profit rose 28% in the fourth quarter, contributing about 5 points to the Dow industrials' advance and leading retail stocks higher.

Gainers beat losers by a slim 1,204-to-1,128 margin on the Big Board, where volume reached a heavy 455 million shares, compared with 466 million on Tuesday.

The S&P 500 index also rose 3.60 points to 649.93, its seventh record closing high for the year.

But the tech-heavy Nasdaq composite index lost 4.20 points to 1,084.88 after setting three consecutive record closing highs.

After chip makers scored solid gains, Montgomery Securities and Hambrecht & Quist downgraded semiconductor equipment makers because of concern about oversupply of dynamic random access memory (DRAM) chips used in computers and consumer electronics.

LAM Research fell 6 1/2 to 45 1/2, Novellus shed 5 5/8 to 54 1/8, Applied Materials was off 4 3/16 to 39 15/16 and KLA Instruments was down 4 1/8 to 30 1/8.

"Chips stocks rose 40% in three weeks so they're due for a normal timeout. Today we went out of high-techs and into blue chips," said Alfred Goldman, technical research director at A.G. Edwards. "We're seeing rotation."

"The big noise today is profit taking in the techs," said Philip Orlando, chief investment officer at Value Line Asset Management, but he added that he remains bullish on the group.

Orlando is attending Goldman Sachs' technology conference, which started Tuesday and ends today, "and from the presentations I've seen, there's nothing that discourages me from thinking that techs are the place to be."

But Moore cautioned that high technology remained under pressure in the near term.

In the bond market, the Treasury sold $14 billion of 10-year notes at a slightly higher-than-expected yield of 5.649%. The higher rate suggested that the plentiful supply--a record for 10-year notes--gave investors leeway to demand better yields on their investments.

Meanwhile, the market yield of the Treasury's main 30-year bond rose to 6.15% from 6.13% on Tuesday.

Nonetheless, banks and utility stocks gained on hopes that rates will fall further. The Federal Reserve Board's rates, which were cut Jan. 31, signaled to many analysts that the central bank is committed to spurring economic growth, which would give profits a boost, analysts said.

Lower borrowing costs allow banks to keep more of the money they take in from personal loans, credit cards and mortgages. The S&P major regional banks index jumped 2.41 points, or 1%, to 251.78. Bank of New York rose 1 3/8 to 52 1/2 after it was raised to "strong buy" from "outperform" at Morgan Stanley. Wells Fargo jumped 1 5/8 to 253 1/4 and First Interstate Bancorp climbed 1 1/8 to 166 7/8.

Another harbinger of lower rates was a gain in the Dow utilities average, up 1.26 points, or 0.5%, to 232.32.

Typically, advances in utility stocks precede declines in bond yields as investors snatch up the dividend-bearing shares, betting that returns on fixed-income investments will drop.

Among Wednesday's market highlights:

* Bell Atlantic rose 1 5/8 to 72 3/8 and Nynex added 3 3/4 to 59 1/8. The two companies are deep in merger negotiations, a source familiar with the talks said.

* General Re lost 5 1/4 to 146 3/8. The reinsurance company lost a major domestic account representing about $230 million in premiums, which will result in much slower-than-expected domestic premium growth in 1996, analysts said.

Reinsurance stocks falling in sympathy included National Re, off 1 5/8 to 33, and Trenwick Group, off 1 1/2 to 51 3/4.

* Hilton Hotels shed 3 1/2 to 86 3/8. The shares have climbed since the company announced it had hired Disney Chief Financial Officer Stephen Bollenbach as its president and chief executive.

* ManPower rose 2 1/2 to 29 5/8 after reporting stronger-than-expected fourth-quarter earnings.

* Some initial public offerings drew strong responses. Raptor Systems, a developer of a family of software products that provide security for organizational networks, jumped 9 3/4 to 24 3/4. Renal Care surged 6 to 24.

* Learmouth & Burchette tumbled 4 9/16 to 5 3/16 in U.S. trading after forecasting a third-quarter loss on lower-than-expected revenue.

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